The Canadian dollar gained on Friday agains the US dollar as oil prices moved higher by 0.577 percent and the political drama surrounding the Trump administration could result in the President of the US be the target of an investigation of the interference of Russia in the US elections.
The loonie got a boost from the Bank of Canada (BoC) policy makers who made hawkish comments about the Canadian economy and dropped strong hints that a rate hike could come sooner rather than originally expected by markets. The BoC’s last change in the benchmark rate came in July 2015 as the second rate cut that year down to 0.50 percent. Improving economic indicators and a concern for household debt rising even more have prompted the central bank to signal a possible rate rise to keep the gap with the Fed from growing too large.
The USD/CAD lost 1.411 percent in the last five days. The currency pair is trading at 1.3241 after comments from the Bank of Canada (BoC) Deputy governor put a rate hike firmly on the table. Governor Stephen Poloz followed up on the comments the next day and confirmed the optimism on the growth of the economy and the possible reduction of stimulus going forward.
The loonie rallied until the U.S. Federal Reserve delivered its own optimistic view on the American economy while hiking rates for the second time this year. The hike was not enough to offset the negative indicators delivered this week that contradict the picture painted by the Fed’s forecasts.
The CAD advanced despite little support from oil prices who suffered from another surprise buildup, this time in gasoline stocks. The battle to stabilize crude prices between the Organization of the Petroleum Exporting Countries (OPEC) and US producers continues to show the glut of energy products remain.
The biggest risk for the Canadian dollar remains a political one. The renegotiation of the NAFTA is scheduled for late August and a negative outcome could reshape the Canadian economy for the worse. The turmoil in the Trump Administration has taken some of the pressure off, but the consultation process needed before renegotiation was initiated as anticipated and the soft lumber tariffs to Canadian producers sent a strong message ahead of sitting down at the negotiation table.
Market events to watch this week:
Monday, June 19
9:30pm AUD Monetary Policy Meeting Minutes
Tuesday, June 20
2:30 am CHF SNB Chairman Jordan Speaks
4:45 am CHF SNB Chairman Jordan Speaks
Wednesday, June 21
10:30 am USD Crude Oil Inventories
4:00 pm NZD RBNZ Rate Statement
5:00 pm NZD Official Cash Rate
Thursday, June 22
8:30 am CAD Core Retail Sales m/m
8:30 am USD Unemployment Claims
Friday, June 23
8:30 am CAD CPI m/m